(Kitco News) - Gold’s four-day has pushed prices solidly positive for the year, and while the market still faces potential obstacles, one research firm expects the precious metal to see higher prices in the long term.
In a note Friday, Kieran Tompkins, Commodities Economist at Capital Economics, reiterated his bullish call for gold as the Federal Reserve prepares to embark on a new easing cycle. Tompkins said that he sees gold prices ending the year around $2,100 an ounce and pushing to $2,150 by the end of 2025.
However, gold has already surpassed Capital Economics’ year-end target. As of 8 am ET, April gold futures were trading at $2,134.80 an ounce, up 0.40% on the day.
Gold prices have struggled through the start of the new year as market expectations surrounding the Federal Reserve’s monetary policy have shifted towards less aggressive easing. However, markets still expect the U.S. central bank to cut interest rates and Tompkins said that is what will support gold prices going forward.
According to the CME FedWatch Tool, markets see roughly a 60% chance of a rate cut in June. While the Fed may be dragging its feet early in the process, Tompkins said that the destination remains the same, even it it takes longer to get there.
“We have recently revised our forecast for US interest rates,” he said. “In brief, we now expect 200bp of cuts by end-2025, beginning in June, which is a slightly faster pace of loosening than investors currently anticipate. Accordingly, we forecast the 10-year Treasury yield to fall from its current level of ~4.25% to 4.0% by the end of this year. If most of that drop were due to a decline in real yields, that could push the gold price to around $2,100 per ounce.”
Tompkins added that he also sees potential for higher gold prices as the U.S. dollar weakens in the next two years.
“While we only forecast a slight softening this year, we think there is room for more weakness in 2025, which could boost the gold price further,” he said.Look for a higher gold price this year and next - Capital Economics
The key to gold remains investor demand as the British research firm sees renewed inflows into gold-backed exchange-traded funds.
“We think it will rebound a little by the end of the year on the back of falling US Treasury yields, which would reduce the opportunity cost of holding a non-interest bearing asset such as gold,” Tompkins said.
